By Edward Zelinsky
Sixteen more billionaires have signed the “Giving Pledge” sponsored by Warren Buffett and Bill Gates. Signers of the Pledge commit to donating to philanthropy a majority of their wealth. New signers of the Pledge include the founders of Facebook, Mark Zuckerberg and Dustin Moskovitz.
Critics of the Giving Pledge denounce it as a public relations gimmick. Even if each Pledge signer donates a majority of his fortune to charity, his heirs will still inherent substantial wealth from what remains.
I am not one of these critics. I take Mr. Buffett, Mr. Gates and the other signers at face value and applaud their charitable intentions. I do find it interesting that certain names are absent from the Pledge. For example, despite their self-proclaimed liberalism, not a single member of the Kennedy family has signed the Giving Pledge. By the same token, no prominent movie star has signed the Pledge even though many such celebrities loudly proclaim their commitments to humanitarian causes.
Those who have signed the Pledge deserve to be recognized for their philanthropic intentions.
However, an important aspect of the Giving Pledge is troubling and I urge Mr. Buffett, Mr. Gates and the other signers to consider this problem: Their charitable donations will exacerbate the federal budget deficit. The Giving Pledge should accordingly be amended to include the federal Treasury.
When a billionaire dies without making a charitable contribution, unless he or she leaves a surviving spouse, a portion of every dollar of the estate goes to the federal Treasury in the form of estate tax. This remains true under the estate tax deal recently crafted by President Obama and the Republican congressional leadership. When part or all of a billionaire’s estate is instead directed to charity, no portion of the charitable bequest goes to the federal fisc.
For two reasons, the Giving Pledge donors should direct a significant fraction of their charitable donations to the U.S. Treasury in lieu of the federal estate taxes they are avoiding by their charity. First, their billions were created with the help of the nation’s laws, institutions and infrastructure. The signers should reimburse the taxpayers who funded this valuable public overhead and thereby help preserve those laws, institutions and infrastructure for others to come.
Second, the future economic strength of the United States is a vital cause. We should not saddle (as we are) our children and grandchildren with mounting national debt. Payments to the Treasury by the signers of the Giving Pledge will help reduce that debt.
The standard retort is that these billionaires can allocate their money more efficiently and effectively than can the federal government. Perhaps. Nevertheless, the rest of us don’t have the financial freedom of the signers of the Pledge. In fairness to us, those signers should allocate a significant portion of their charitable payments to the federal fisc – just as we are required to make significant tax payments to the U.S. Treasury.
I too might allocate my resources more efficiently and effectively than does the federal government. However, I am not afforded that chance. Instead, federal income tax is withheld from my every paycheck. To the extent that I donate to charity, some of that withheld income tax is subsequently directed by me to a charity of my choice. Nevertheless, for me and others who work for a living, the vast majority of our contributions to the federal Treasury are involuntary tax payments. We lack the practical option to send the bulk of our money to a charity of our choice – even though we too might direct that money more productively than does the federal government.
I accordingly suggest an addendum to the Giving Pledge. In recognition of the role this nation’s laws, institutions and infrastructure play in creating their fortunes, the signers should commit the first 35 cents of every donated dollar to the federal Treasury in lieu of the estate taxes being avoided by such charitable donations. The remaining 65 cents per donated dollar will still be an enormous amount of money for each signer of the Pledge to commendably direct to the charity of his or her choice.
Taxes should not just be for the little people.
Edward A. Zelinsky is the Morris and Annie Trachman Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University. He is the author of The Origins of the Ownership Society: How The Defined Contribution Paradigm Changed America. His monthly column appears here.